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EPCG scheme enables an Indian manufacturer all service provided to obtain capital goods at nil rate of customs duty against commitment of export obligation. The objective is to facilitate import of capital goods producing quality goods and services to enhance India's export competitiveness. Importer will be issued EPCG authorization for this purpose.

The import under the EPCG is subject to an export obligation equivalent to 6 times of duty saved on capital goods imported under EPCG scheme, to be fulfilled six years reckoned from authorization issue date.

Export obligation will be reduced to 75% of capital goods are to procured from indigenous manufacturers. Capital goods shall include spares, tools, jigs, fixtures, dies and moulds.

Technological Upgradation (TU) of existing machinery:- EPCG authorization holders can opt for 'Technological Up gradation' of existing capital goods imported under EPCG Authorization. Condition governing is as under:

1. Minimum period for applying for TU is 4 years from earlier EPCG Authorization,

2. Minimum exports made must be 50%of total export obligation imposed on earlier EPCG Authorization.

3. Facility for technology up-gradation shall be available only once and the minimum imports to be made shall be at least 10% of existing investment in plant and machinery by applicant.

4. Capital goods to be imported must be new and technologically superior to earlier Capital Goods.

Which capital goods are not eligible:-

1. Second-hand capital goods,

2. Import of restricted item of imports mentioned under ITC(HS) shall only be allowed under EXIM Facilitation Center at DGFT Headquarter.

Who are eligible to obtain EPCG Authorization:-

1. Manufacturer exporters with or without supporting manufacturer / vendor,
2. Merchant exporter supporting manufacturer and,
3. Service provider.

Export Obligation under EPCG:-

Export obligation means obligation to export product or products covered by Authorization or permission, in terms quantity, value as may be specified by Regional or Competent Authority.

Third party exports permissible:-

Export can be direct or through third party. Export documents should specify his name.

Block-wise fulfilment of export obligation:-

Minimum 50% of export obligation shall be fulfilled in the first four years and balance 50% in remaining in two years. The report should be submitted within next 3 months from the end of block.

Relief in export obligation:-

Relief in average export obligation can be granted where total exports in that sector / product group have declined by more than 5%. Sector will be notified by DGFT.

Shortfall in export obligation condonable up to 5% by regional authority.

Consequences of non-fulfilment of export obligation:-

If export obligation is not fulfilled or partially fulfilled, customs duty with interest is payable proportionate to export obligation not fulfilled. Customs duty can be paid through duty credit scrips.

If the goods are not exported as per the obligation differential customs duty plus 15% interest is payable.

Extension of Export obligation:-

Extension for fulfilment of export obligation up to 2 years can obtain from Regional Authority on payment of composition fee of 2% of proportionate duty saved amount.

Procedures under EPCG:-

Application for EPCG authorization should be in form ANF5A.
Application shall be accompanied by certificate of CA/CMA/CS in form 5B.
Application can also be made for import of spares, tools etc.

Authority to issue EPCG:-

When duty saved is up to Rs.50 Crores can be sanctioned by Regional Authority of DGFT, if duty saved is more than Rs. 50 Crores, application will be forwarded by RA to DGFT.


Published by

Kalpesh Veer
Category Income Tax   Report

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